Friday, August 26, 2011

We shouldn't care about the cost of a stadium

(This was first written in April 2009)

There is much to get excited about in Ottawa these days.  Two major projects have been proposed that would be huge attractions for area residents, increase the national and global profile of Ottawa, provide structures and sites we can be proud of and draw tourism from all over.  With such glowing words you would think I am in favour of City, Provincial and Federal funding to support these initiatives, but I see a better way.

Whenever governments provide funding for a project they are spending money they have first taken by force from you through myriad taxes and fees.  The rationale for taking your money is that politicians and bureaucrats know best how to spend your hard earned money.  Presumably you are too dumb to choose what you will buy, where you will go, how you will get there, what you will eat, where and how you will work, how to care for the health and education of yourself and your family and so on.  Because taxes on productive work and business are so high, many businesses are near impossible to run without getting some of the money back through government grants, loans, investments etc.  This creates a cycle of punishment and dependency.

Consider the case of Lansdowne Park.  The facility and land are City-owned.  The asset has been crumbling for a long time because it is not owned by anyone with true business accountability to the customer.  It is an example of the tragedy of the commons, where something owned by everyone but no one in particular suffers from neglect and various interest groups fight for political control of it.  In the end it is under-productive.  The consequence is the government continues to pour your money into the declining asset until it is time to go back to the start and spend much larger amounts of your money on reconstruction.  Between the consumer and the project is a huge gap.  The project attempts to operate outside the real economy and inside the imaginary world of government’s “higher knowledge and purpose”.

Contrast this with Scotiabank Place.  The facility and land are owned by a business.  Before investing in the venture the business must take careful account of economic reality, meaning assessing the willingness and ability of the customer to buy the product.  Costs must be scrupulously controlled.  Prices must reflect the consumer market at all times.  The value of the asset must be maintained as efficiently as possible.  All this is done as a standard and crucial part of business analysis and operation.  If the business cannot be run at a profit it fails and is sold to another business that thinks it can make it work.  With a low enough purchase price they likely can.  This is an example of how a free market reallocates capital to those who are best able to manage it, directed by the inexorable power of you, in your role as a self-interested consumer.

If government would get out of the way of the businessmen behind the current proposals we would surely have both facilities well run for decades with no risk to the citizens of Ottawa, Ontario or Canada.  Entrepreneurs willing to stake their reputations, experience and capital would take all the risks and enjoy whatever rewards consumers choose to give them.  Government would sell assets it owns at market price, not charge any taxes or fees except those services the facility management buys from government agencies (water, electricity etc.) and pledge not to impose any such penalties in the future.  With the huge cost of government removed from the project, entrepreneurs could raise more capital on their own and remove all risk from government and citizens.  In fact, this is how business was once done in Canada, as is proper for a country that was once almost fully free.  With obstacles such as the crushing weight of the nanny state, City councilors who could not build or run a project like these in a million years and who spend most of their time trying to run your life, it is no wonder the pace of progress on such things is often slower than rust on my car.

I don’t want to be forced to care at all about the cost of a stadium facility because it is properly the responsibility of business people, not politicians and voters.

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